The retirement savings industry should take the lead in reinvigorating Britain’s savings culture by setting up a mandatory annuities ‘clearing house’ and a service for grouping small pension pots, said the Centre for Policy Studies.
‘The Open Market Option which allows retirees to shop around for the best annuity rate, is widely regarded as a failure,’ it said. ‘This paper proposes that the exercise of the OMO should be made mandatory, achieved via an annuities clearing house; essentially, a marketplace in which all annuity providers participate.’
All annuity contracts would be standardised and, due to the small scale of average defined contribution pension pots being sold as annuities (£25,000 on average) they would be aggregated before being sold to increase the number of potential purchasers, and therefore increase the change of getting a better deal.
Pensions providers should also work together to drive the process of pot consolidation by establishing an industry-wide DC pot consolidation service.
According the report, this ‘BACs for pensions’ clearing house would benefit customers and providers alike by reducing the cost of administering the millions of small pension pots built up by people moving around employers and helping savers to maximise their retirement income.